EU warned of credit crunch threat, French banks hit

Sep 14, 2011, 11 a.m.

An employee enters the headquarters of French bank Societe Generale, the country's second largest, at La Defense, west of Paris, August 11, 2011. REUTERS/John Schults

"We want a guarantee that the recovery plan announced will be put into action," French government spokeswoman Valerie Pecresse said. No statement would be issued after the call.

EU Economic Affairs Commissioner Olli Rehn said issuing common euro zone bonds would require much more intrusive surveillance of member states' fiscal and economic policies, which would have to be fully debated in each country.

A German Finance Ministry spokesman reaffirmed Berlin's opposition to the idea but said it awaited the proposals.

STOP CRISIS SPREADING

China and the United States both voiced concern that euro zone governments may be losing control of the debt crisis.

Chinese Premier Wen Jiabao said Beijing was willing to help its biggest trading partner, but added that Europe must stop the crisis -- which now threatens Italy -- from growing.

"What we have to take note of now is to prevent the sovereign debt crises from spreading and expanding further," Wen said on Wednesday in an apparent response to pleas to buy more euro zone government bonds.

Chinese state media said the EU should recognize Beijing's help with the debt crisis by giving China market economy status, which would give better protection against European anti-dumping penalties -- a major irritant.

Wen's comment echoed concerns voiced by U.S. President Barack Obama who earlier this week urged the big euro area states to take responsibility for supporting weaker members and called for a "more effective coordinated fiscal policy."

A senior Indian official said finance ministers of Brazil, Russia, India, China and South Africa would discuss a Brazilian proposal to increase their holdings of euro zone bonds when they meet in Washington on September 22.

But Greece's deputy finance minister injected a note of skepticism, saying those countries had shown little or no interest in buying short-term Greek debt despite invitations to do so.

Credit markets are factoring in a 90 percent chance Greece will default on its debts and they demanded the highest risk premium on Italian five-year bonds at auction on Tuesday since the country joined the euro.

Italian Prime Minister Silvio Berlusconi's government won a parliamentary confidence vote on a 54-billion-euro austerity package, which lawmakers were due to finalize later in the day. The moves have done little so far to stem doubts about whether the euro area's third-biggest economy can manage its debts.

Greece, Ireland and Portugal have all received EU/IMF rescue packages, but many see Italy as too big to bail out.

RATINGS CUT

BNP Paribas announced a plan to sell 70 billion euros in assets to help ease investor fears about leverage and funding that hit its two main rivals.

Bank of France Governor Christian Noyer said the Moody's action on French banks was relatively good news, noting it put them on a par with other major European lenders regarded as healthy such as HSBC, Barclays and Deutsche Bank.

"It's a very small downgrade and Moody's had a higher rating than the other agencies so it's just put them on the same level or slightly better than the others," Noyer said.